You buy a share of stock for $80. you hold the stock for 9 months and sell it at

Question

You buy a share of stock for $80. you hold the stock for 9 months and sell it at the end of that period for $95 You receive for 9 months and sell it at the end of that months for a total dividend of $1.50 each ($1 .50 dividend every three late the capital gains yield and the dividend yield over the 9-month holding period. assume that the dividends are not reinvested. Assuming the dividends are not reinvested, calculate the Annual Percentage Yield. Assuming the dividends are reinvested, calculate the Annual Percentage Yield. You may assume that share prices at the end of each of the next three quarters are $$5, $97 and $90.

Explanation / Answer

a)APY = (1+Holding period return)1/n – 1

Holding Period Return = 19%
n = 7/4 = 1.75 Years (seven quarters)

= > (1+0.19)1/1.75 – 1 = 0.1045 or 10.45%

b)Effective Annual Rate = [(1)+(r/m)]m – 1

r = nominal interest rate
m = number of compounding every year

= > [(1)+(0.09/12)]12 – 1 = 0.0938 or 9.38%

c)Capital Gain Yield = (Ending stock price – Initial stock price) / Initial stock price
=> ($95 - $80) / $80 = 0.1875 or 18.75%

Dividend Yield = Total Dividends / Current stock price
=> $4.5/$95 = 0.0473 or 4.73%

d)Holding period return = [($95 + $4.5) – ($80)] / $80 = 0.24375 or 24.375%

APY = (1+0.24375)1/.75 – 1 = 0.3376 or 33.76%

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